Archive for the ‘South-east Asia’ Category

It is pretty much clear that Dirty Harry Duterte has won the Philippines’ presidential election.

Thank goodness. Six years of Noynoy, with relatively clean government and improved growth threatened the Philippines’ status as the most dysfunctional polity in mainstream east Asia. The Thais were catching up. Fast.

Dirty Harry has the chance to put his country back on its pedestal by returning to the basics of machismo, nepotism, greed and ignorance. I’m not absolutely certain he will seize the chance because, like Donald Trump, he expresses contradictory positions on almost every issue. Which is more important to Duterte: LGBT rights or rape? He’s expressed support for the first and condoned the second. I guess that only time will tell.

Do we blame the poverty of Filipinos for this presidential choice? Or the poverty of choice of candidates? My personal grudge is against Noynoy, for endorsing Mar Roxas, from one of the great robber baron political dynasties, as his successor. Roxas stood aside in 2010 to give Noynoy a clear run, so it seems that Noynoy decided he had to return the favour. It may yet be 100 million Filipinos who pay the price for this bit of political business as usual.

Dirty Duterte / Donald Trump quiz:

The Guardian today offers the following quotations. Which ones are from Duterte, and which are from Trump? Answers at the end.

On crime and punishment:

On crime and punishment

A: “Forget the laws on human rights… You drug pushers, hold-up men and do-nothings, you better go out. Because I’d kill you.”

On sex and other things

A: “I was separated from my wife. I’m not impotent. What am I supposed to do? Let this hang forever? When I take Viagra, it stands up.”

B: “My fingers are long and beautiful, as, it has been well documented, are various other parts of my body.”

On modesty

A: “I do not have brilliance, wit or smartness. What I have is common sense. It is what our country needs!”

B: “My IQ is one of the highest — and you all know it! Please don’t feel so stupid or insecure; it’s not your fault.”

On negotiation

A: “Do not fuck with my team.”

B: “Sometimes you need conflict in order to come up with a solution. Through weakness, oftentimes, you can’t make the right sort of settlement, so I’m aggressive, but I also get things done, and in the end, everybody likes me.”

On the political system

A: “The trouble with us in government is that we talk too much, we act too slow, and do too little.”

B: “One of they key problems today is that politics is such a disgrace. Good people don’t go into government.”

On the future

A: “We, the People, recognise that we have responsibilities as well as rights; that our destinies are bound together; that a freedom which only asks what’s in it for me, a freedom without a commitment to others, a freedom without love or charity or duty or patriotism, is unworthy of our founding ideals, and those who died in their defence.”

B: “We need to steer clear of this poverty of ambition, where people want to drive fancy cars and wear nice clothes and live in nice apartments but don’t want to work hard to accomplish these things. Everyone should try to realise their full potential.”

Answers: All As are Rodrigo Duterte and all Bs are Donald Trump. EXCEPT the last one – both are Barack Obama.

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Here is the first of three articles in the Huffington Post on the background to the Philippine elections. The first article links to the other two.

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I have meant for some time to recommend Joshua Oppenheimer’s two documentaries about the deaths of more than 1 million people in Indonesia in 1965-6, at the time when Suharto came to power. It wasn’t a genocide, I think, because lots of different racial groups were targeted (though ethnic Chinese suffered greatly). Rather, it was a ‘politicide’, if such a word exists, an attack on all those deemed to be enemies of the new regime, including anyone deemed to be a communist.

If you have not seen these films, you should. They can be rented cheaply from Amazon. Here is the download from Amazon.co.uk for the first documentary (£3.49 to rent), The Act of Killing, and here is the download from Amazon.co.uk for the second documentary, The Look of Silence.

The Act of Killing received rave reviews partly because of Oppenheimer’s extraordinary methodology. He showed up in Sumatra saying he was interested in learning about the 1965-6 killings, and a bunch of semi-retired preman (gang members/thugs) said: ‘Hey, that’s us. How can we help?’ He then convinced them to act out their memories of murder for his movie. This makes for some very weird and utterly compelling footage.

Personally, however, I like The Look of Silence more. In this second documentary, Oppenheimer follows one of the victim families, as a surviving brother gently begins to confront the murderers who butchered his sibling and chucked his body in the local river. The Look of Silence gets much closer to the political and social story underlying the politicide. It is not so visually freakish, but it makes you think more. I note that on Amazon, individual viewers rank it higher than The Act of Killing, so other people may have had the same reaction as me. Really, tho, you need to watch both docs.

Finally, here are Werner Herzog and Errol Morris talking about The Act of Killing, just in case the trailer hasn’t convinced you to watch it:

He leaves us just as Singaporeans are finally falling out of love with his People’s Action Party, as I blogged after visiting Singapore last October. It is a pretty good record for someone who started out in politics in the 1950s.

Harry’s departure severs the direct link between south-east Asia’s political elite and its colonial past. (Mahathir is still alive, but he was not a player in the colonial era.) This seems to me to be the key import of this moment. There won’t be another Harry, born into an Anglicised and privileged family, angered yet titillated by colonial power, driven to reinvent himself as a true Chinese (and struggle to learn the Chinese language that was foreign to him as a kid), then striving to find a happy medium as Singapore’s leader somewhere between Asian nationalist and American lickspittle. He opted for a combination of proto-Victorian morality re-dressed-up as Asian values, and the biggest CIA station in the region, that saw American lickspittle win comfortably.

Pragmatism is I think what defined Harry more than anything. He was a fantastic leader for Singapore. But he didn’t really give a toss about south-east Asia so long as Singapore was ok. In this sense he was a modernisation of British governors of the Crown Colony of Singapore. Smarter, more savvy, more efficient than any colonial goon, but at the end of the day nothing very different. He provided phenomenal leadership, and he led by example. But the notion he had ‘vision’ at the level of south-east Asian politics and development does not stand up for me.

So goodbye Harry. I think of you as the full-on Chinese student at Cambridge, with your motorbike and your cigarettes, determined to prove you were better than the gweilos, even if what mattered most to you all too often was their approbation. I wonder: did you used to flick your cigarette butts away on the street, such that you would have been fined in Lee Kuan Yew’s Singapore? We may never know.

Later:

Here is an essay about Lee Kuan Yew by Orville Schell in The Wall Street Journal. It is not the way I would tell Harry’s story, and is something of a eulogy, but worth reading.

The quality outs when the dust has settled. Jerry Cohen relates encounters with Harry across the decades in this article. Note Harry’s instructions, after he gave up smoking, that no one should smoke when he attended a social gathering. Including in the United States…

This recent documentary about Singapore’s political exiles is much praised. If you can find some way to see it. I have not.

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In the past couple of weeks I have posted blogs that seemed to me important. About the Xi Jinping-Obama understanding on emissions that paves the way for a global deal to arrest climate change in Paris next year. And about Adair Turner’s argument that governments may have to print money to pay for fiscal expenditure and monetise part of their debts if we are to head off another asset bubble by raising interest rates while at the same time avoiding global economic depression.

Well, these momentous developments have garnered little more than the usual rate of traffic on this blog. So, looking at email addresses of the several hundred people who now subscribe to every single post (dear oh dear), I note that most of you are academics, researchers, money managers, NGO-types and ‘activists’. So it occurs that what you really want is a bit of gratuitous demi-porn to take the edge off your lives of monotonous intellectual mind-wrestling.

Fortunately I am in a position to indulge you. The peg is the recent APEC summit in Beijing, which was important not just for an apparent meeting of minds between the Chinese and US presidents, but also for an alleged pass made by the Russian president, Vladimir Putin, at Xi Jinping’s wife.

Personally, I don’t think there is much to it, although Putin is now officially a single man, which puts him (even more) firmly in the frame in terms of motive. However the extraordinary reaction of Chinese censors, who moved immediately to expunge any trace of Vlad’s let-me-get-your-coat-darling moment from the Chinese Interweb, reminds us that in Chinese Communist Party cultural terms Vlad was indeed on quite thin ice. Here, side by side, are the photo (similar to the one below) briefly posted by Chinese state news agency Xinhua and, to the right, the notice you got shortly after/still get at the same URL saying in Chinese that the page has been deleted.

Obama to Xi: ‘Looks like Ukraine is not the only thing Vladimir wants to get into.’

And here is a brief story from Foreign Policy about the whole incident, including a link to video if you really want more.

The Putin-Peng Liyuan (yes, she has a name) frisson got me thinking, as I am sure it has you, about the broader subject of global leaders hitting on other leaders, their wives and partners. So here, in no particular order, are some memorable moments I have been able to come up with:

1. Henry Kissinger’s ever-penetrating analysis. These must surely be among the most famous images of the genre, as Henry first enjoys a full frontal review of Lady Diana’s strategic assets, and then follows up from behind with a sly ass-check.

2. The Brezhnev. But did you know that back in 1973 Kissinger’s own date, former Bond girl Jill St. John, was subjected a famous occular eye-over by the leader of the Unfree World, Leonid Brezhnev? In the photo below you can almost see Brezhnev calculating out the potential upside of detente with the Americans. Coincidentally, it was in 1973 that Kissinger was quoted in the New York Times saying that: ‘Power is the ultimate aphrodisiac.’

Here is a shot that shows Kissinger (back to camera) and Jill as another guy (described in Walter Isaacson’s Kissinger biography as a ‘naval aide’) gives Jill’s ass a caressing gaze too.

3. Size doesn’t matter. Deng Xiaoping. There is no killer photo here, just various official ones like that below. However, when Ronald and Nancy Reagan visited China in 1984 and were received in the Great Hall of the People, Deng said to Nancy (in range of the foreign press corps): ‘I hope you’ ll come the next time and leave the president home.’ After translation, the ever-cool Ron batted the remark away.

4. Obama-Gucci Helle. These images are so recently famous they hardly bear posting. Except to tee up the less well-known 5., below. Here Obama flirts with Danish prime minister Helle Thorning-Schmidt, known to her countrymen as Gucci Helle for her rather un-Danish love of branded designer clothing.

And here is the US president after a bollocking from his wife, who was sitting on the other side of him all along. (There is another image of Brave Dave Cameron forcing his way into Helle and Obama’s selfie, but it is just too depressing to post.)

5. Obabma and Lil sis’ Yingluck. Now here is the collector’s item. It is Obama and Thaksin’s little sister Yingluck, who was running Thailand after Thaksin was thrown out in a coup, at least until Yingluck was also thrown out in a coup. What was that song about ‘One night in Bangkok’?

To be fair to Obama, however, I think the story may have been that it was young Yingluck who was providing the come-on.

I failed to write anything the week ending 18 October despite an interesting trip to participate in the 10th anniversary of the Lee Kwan Yew School of Public Policy at the National University of Singapore. (They invited you, you’re thinking. Yes, they did. As Saul Bellow once wrote: ‘There is nothing too rum to be true.’)

I also had a wonderful side-visit that week across the causeway to Johor Bahru, about which I will say nothing more than that if you have never read Han Suyin’s classic novel And The Rain My Drink, you should get on and do so. The book is particularly recommended for Chinese, Indians, Malays, Japanese and assorted gweilos, all of whom feature amid the chaos of the Emergency in Malaya/Singapore. What is more, there is a new edition, published by Monsoon Books that contains two, new short forewords; one is by Han’s former ‘liberal’ Special Branch husband; and one is by a well-known Malaysian human rights lawyer. The forewords unlock a few secrets about the writing of and background to the book. The copy I picked up in Singapore has the cover contained in the previous link; the copy available on Amazon has a different cover but an online review indicates it has (at least) the additional foreword by Han Suyin’s second husband. The book is not a bad gift.

Aside from the trip to JB (the treatment of hundreds of thousands of Malaysians who cross the border for work each day is pretty shocking on both sides; waiting time is frequently hours), the week in Singapore gave me a chance to speak with a bunch of policy people and a couple of ministers, and so here are a few thoughts about a place I don’t often talk about:

Singapore menu du jour:

1. The Great Unwashed are becoming the Great Ungrateful. In the 2011 election, Harry Lee’s People’s Action Party (PAP) got, by Singapore standards, a kicking, hit by a negative vote swing of almost 7 percentage points which took it down to 60 percent of votes cast. More and more people have had enough of the PAP’s arrogance, its brutal elitism and its lack of the common touch. On top of this there is Singapore’s hideous inequality (Gini of income inequality at a record 0.54), the out-of-control immigration (including horrific numbers of dumb, fat gweilos), and the apparently congenital inability of PAP politicians to think in terms of the population’s interests as a whole. Back in the UK, the PAP makes me think of David Cameron and George Osborne on a really bad day.

2. Never underestimate Harry, or indeed Little Harry. The PAP remains a formidable machine when it comes to co-opting Singapore’s best and brightest. A reasonable example is chipper Minister for Culture, Community and Youth, Lawrence Wong, whom I had the pleasure to chat to. He is a big supporter of new PAP measures to curb real estate speculation and increase welfare transfers to the poor. It is not fundamental change, however it is change at the margin. The PAP’s logo may have been inspired by that of Oswald Mosley’s British Union of Fascists, but the PAP has enjoyed considerably more success and longevity.

Oswald

Harry

3. So the big PAP trope just now is that the party is becoming much more touchy-feely and getting down with the labouring masses. At a public forum, many-times minister — most recently Foreign Minister — George Yeo, who became the most senior PAP figure since the 1960s to lose his seat in 2011 (‘arrogance’, said one of my taxi drivers), summed up the required shift in elegant philosophical terms. He said that Singapore must move on from ‘utilitarianism’ and seek policies that work for as many people as possible. In other words, the crude majority (assuming there even is one in the next election, in 2015) should no longer ride rough shod over the interests of minority groups, be they the very poor, Malays, whomever. He didn’t use the second philosophical designation, but what he meant is that Singapore needs to shift from utilitarianism to something more Pareto efficient, where policy gains for the majority do not come at the expense of other people.

4. Unfortunately I am a sceptic and I don’t believe the PAP will change its stripes – at least not fast enough to prevent even more trouble at the next election. At the same forum I commended George Yeo for calling for a move to a more mature, thoughtful policy framework. Then I asked him when he thinks Singapore will stop hanging people. (Singapore releases poor and patchy data, but in some years has had the highest per capita state execution rate in the world.) The response was interesting: no more new George/new PAP. He simply said that killing people has a deterrent effect and that most Singaporeans are in favour of it. This is the old PAP we know and love: not letting facts or logic get in the way of what it wants to do. First, there is no statistically robust evidence – and there are many studies – that capital punishment has a deterrent effect, so the claim to the contrary is disingenuous. Second, the logical case against capital punishment doesn’t hinge on the debate about deterrence anyway. Instead — at least for me — the sledgehammer argument against capital punishment is that you cannot guarantee in any legal system not to make mistakes; and when you do make a mistake, you cannot bring wrongly-hanged people back from the dead. I have looked in detail at miscarriage of justice cases in both the UK and the US, each of which has a better, more transparent legal system than Singapore. So when George offered the sop that he is open to looking for better ways to kill people, I wasn’t overly impressed. In reality of course, the PAP is sufficiently embarrassed at some level about its barbarism that the number of killings has fallen sharply as its political support has waned in the 2000s and 2010s; in 2012, the number of convictions subject to mandatory capital punishment was reduced.

Hong Kong should focus its fight on the tycoon economy

Hong Kong stepped back from the brink on Friday night, when chief executive CY Leung belatedly authorised a senior official to “hold talks” with protesters and those same protesters decided, for now, not to enter government buildings. It was a fortunate outcome. Beijing would characterise the occupation of official property as an attack on the Chinese state.

What Hong Kong needs is not a strategy that backs Xi Jinping, the Chinese president, into a corner, but one that resonates with his own mindset. This is why the protesters should refocus on Hong Kong’s tycoon economy, and the anti-competitive, anti-consumer arrangements that define it. You may think,like the Heritage Foundation, that Hong Kong is a free market. However, except for external trade, it is not. Instead it is what one of the richest men in the city once described to me as “a nice bowl of fish soup”. That soup is fed to the few, making ordinary people poorer, stoking resentment, and indirectly contributing to acute pollution.

Cartels are everywhere in Hong Kong. Supermarkets are a duopoly, one whose pricing power allows the chains to charge higher prices for the same products in some of Hong Kong’s most deprived areas. Drug stores are a duopoly. Buses are a cartel: high-priced, mostly cash-only, running shoddy, dirty diesel vehicles with drivers who earn a pittance. Electricity is provided by two, expensive monopolies that handle everything from generation to distribution, one on Hong Kong island and the other in Kowloon. The container ports are an oligopoly, with the world’s highest handling charges. Yet they will not supply onshore electricity to vessels, which must instead run diesel generators that pollute the city air.

The biggest stitch-up remains the lousy construction standards and sky-high costs in a residential property market dominated by the “Four Families”, which in the 1990s were estimated to be selling property for between two and four times what it cost to develop.

You may think of the territory as a free market but, except for external trade, it is not

Add in the jiggery-pokery of a Boys’ Own stock market with 1970s-style governance, and a taxation system that tycoons circumvent by taking out their money through tax-free dividends, and you begin to get the picture.

Hong Kong has had a Competition Ordinance and a Competition Commission since 2012. But so far nothing has changed. In a striking contrast with mainland China, where the Communist party after 1989 first increased transfer payments to the urban poor, and then increased transfers and cut taxes for the rural poor in the 2000s, the Hong Kong government lets a colonial rentier economy carry merrily on.

Mr Xi launched his new administration with not only a brutal anti-corruption campaign, but also an anti-monopoly drive. Unfortunately he seems unaware that Hong Kong is at least as rigged as the mainland.

So here is a plan. Speak to Mr Xi in terms he understands. Refocus the protests on the cartels. I am no protester, but it is not hard to think of peaceful tactics that would be difficult for the tycoons to ignore as they sweep into their basement car parks and ascend in private elevators to their penthouse offices. Where possible, boycott the cartels.

Would this be the end for the tycoons? Not at all. In my experience they are people of extraordinary entrepreneurial acumen. Like all of us, they enjoy a capacious free lunch. But if that is taken away they will adjust and add more value to the economy by doing so.

It is time for Hong Kong to work for the majority. If the protesters make Mr Xi understand the economic problem, it becomes easier to compromise on the politics – probably with a more open nomination process in 2022. I hold, perhaps wrongly, that Beijing’s intransigence is born of ignorance, not malice.

The writer is author of ‘How Asia Works: success and failure in the world’s most dynamic region’

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This just went up from Han Donfang. Very much worth a read. The lead explains who he is if you do not know.

And here is a nice piece from The Age about CY Leung trousering US$7m during the sale of his insolvent firm. Now that is leadership.

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Thailand’s latest junta, the National Council for Peace and Order (aka National Council for Underdevelopment as Usual), has confirmed it is committing to a US$23 billion high-speed rail investment. Beyond this I can find very few concrete details. But the expectation is that much of the construction work, as well as the rolling stock, signalling equipment, and even quite basic industrial inputs will be supplied by China. Late last year, before the junta got rid of Thaksin’s little sister, Chinese premier Li Keqiang was down in Bangkok doing the hard sell. When the junta boys grabbed the reins of power they made a show of putting the deal that was then shaping up on hold. But a few months later it is back in play, albeit possibly with some cuts to the project specification suggested by this Bangkok Post article (see the references to lower speed services).

Although we know nothing of the Chinese financing terms, it looks like the Celestial Empire has done an effective number on its traditional south-east Asian tribute states. First they leaned on the Laotians, the poorest and most biddable group, to agree to the first leg from Kunming through their territory. Now they have the Thais in the bag. Officially, the Malaysians say high speed rail is too expensive for them. But my guess is that the Malaysian government will fold once construction starts on the Kunming to Bangkok legs and sign a deal. The Chinese an easily twist their arms by threatening to buy their palm oil and gas somewhere else. (When I saw Mahathir late last year in KL he told me that he personally he is already in favour of a Chinese high-speed deal, so Beijing has one still-loud voice singing its song already.)

Who is all this investment good news for? It is good news for China’s rail equipment and rail construction firms, into which Beijing has sunk vast sums in order to master high-speed rail technology. And it is good news for bourgeois types like myself, who want fast, clean travel between their preferred Nanyang beaches and mountain retreats and the panda lairs of south-west China.

But we shouldn’t pretend it is good news for south-east Asian economic development. By the time there is a high-speed link all the way from Kunming to Singapore — which could now easily be completed within 10 years — the projects will have cost at least US$60 billion in today’s money. That expenditure will have done almost nothing to increase south-east Asia’s grasp of manufacturing technology, or even its project management capacity, because all the value-added goes to China. At a time when south-east Asia desperately needs to increase manufacturing employment to provide jobs for countries’ young populations, the China high-speed rail deals instead reveal the developmental bankruptcy of regional politicians. Their only strategy in addition to being a proto-colonial resource base for China, is to become a tourist destination for a new Chinese middle class.

Summer in Taiwan. I came out two weeks ago with two kids and flew on to Penghu — the ‘Pescadore’ islands between Taiwan and China. Fortunately not on the flight that crashed that week. Clean air, clean beaches, and a diet of oysters and the odd beer.

Then we moved back to Taipei. Fantastic public transport, reasonably priced Chinese language summer camp, sitting in the hot springs at Beitou with a bunch of old boys and girls with flannels on their heads, wandering through night markets and shooting balloons with air pistols, chewing the fat with thoughtful, relaxed, helpful people. Chinese people at ease with themselves. Imagine that!

They tell me they lost the development race with Korea. Not really, I say. You lost the economic development race. But you won the overall development race. In Seoul they are all pissed out of their heads from Monday till Sunday, working 50 hours a week. Here, people are drinking fresh fruit juice and iced tea, eating the best food in east Asia, going to the temple or church, planning a holiday in Laos or Myanmar (it is striking how many people are wholly uninterested in visiting the mainland), reading a good book.

To be sure, I exaggerate for effect. But I honestly suspect that Taiwan is presently the most liveable place in east Asia. The parks, the public pools, the transport system, the schools all work in the general interest. Taipei retains the architectural charm of Tokyo because there are narrow streets but little high-rise construction, but it is more interesting because the Chinese are always up to something. It’s individuality with social responsibility. The losers are males of working age who are compelled to go to the mainland for work. But everyone else is here having a nice time. And there are pleasantly few gweilos of the irritating sort, because they have moved to China, or else stayed in Hong Kong or Singapore in order to better pool their wisdom and thereby earn their clients less money than the market index pays.

Thinking back to Indonesia and Jokowi, if he wants to see what a manufacturing-plus-infrastructure strategy could do for his country, he should pop up here before he assumes the presidency. This is south-east Asia with dignity, built by small-time manufacturers like Jokowi. The Vietnamese, who are the only south-east Asian state on track to replicate this model, might also come over to remind themselves of the future. It ain’t too shabby.

This week’s confirmation that Jokowi won the Indonesian presidential election is a relief. The alternative was an administration under Prabowo and his band of western-educated, elitist carpet-baggers.

Indonesia avoided the negative outcome. But it cannot be said that Jokowi guarantees a fundamental change of direction, as many foreign journalists would like to believe. Jokowi is beholden to the PDI-Struggle party of Sukarno’s daughter Megawati, and to the network of Vice President Jusuf Kalla, themselves different stripes of the Indonesian establishment.

Nor does Jokowi have a policy agenda. He stood as an ordinary person who is not corrupt. But a government that rules relatively cleanly and a little more efficiently will be nothing more than a reprise of SBY’s first term, before the ex-general’s team was consumed by corruption-as-usual.

The real game changer in Indonesia would be a manufacturing strategy that creates more semi-skilled employment opportunities and develops indigenous technological skills. An infrastructure build-out would complement this by creating demand for domestically-manufactured inputs. But such a policy shift is probably too much to expect. Since the Asian crisis and IMF intervention Indonesia has settled on a consumer-focused banking system and a proto-colonial raw material export economy. There are lots of vested interests that surround this arrangement. It would be a very big surprise if Jokowi were to upset the IMF’s apple cart.

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A long trip through Malaysia, Indonesia and China leaves me more convinced than ever that east Asia has two distinct destinies in economic development terms, and that the south-east Asian states are on the wrong side of the tracks.

I start off in Malaysia, where the United Malays National Organisation (UMNO) holds power despite winning a slightly smaller vote share than the opposition in May’s elections. The effect has been a skittish, neurotic administration confronted with deep-seated developmental problems it has no desire or capacity to address. The government commissions reports from the likes of McKinsey as if believing foreign management consultants are likely to come up with some brilliant idea to solve the nation’s problems. In reality, locals know all too well what the issues are — a coddled plantation sector and ignored smallholders in agriculture, low levels of indigenous industrial competitiveness, an untamed army of oligarchs that does almost nothing to promote national economic development and recycles its cash flows offshore, a financial system that pushes out consumer debt rather than supporting industrial development, and resurgent speculation in high-end real estate. Despite oil and gas revenues that cover around two-fifths of the national budget, the government still runs a budget deficit of 5 percent of GDP as it strives to buy off discontent.

In Malaysia today, there is a general sense of malaise, compounded by a recently much increased crime rate — particularly theft, burglary and violent crime. This was never a country that you associated with crime (other than expropriation by godfathers), but that seems to have changed.

On 9 October, a nearly 90-year-old Mahathir was kind enough to grant me a meeting. After corresponding with him during the writing of How Asia Works, I was looking forward to sitting down with him. However the experience did nothing to change the conclusions I had already reached.

Here are the highlights: On agriculture, Mahathir insisted that plantations always produce better yields than smallholders. On Malaysia’s tycoons staying out of manufacturing and not contributing to industrialisation, he commented: ‘They do what they think they can do best. We don’t direct them.’ On the future of economic development, he said he never did, and does not now, see ASEAN as a vehicle for economic policy cooperation and joint development. ‘Economic cooperation is secondary in ASEAN,’ he said. Instead Mahathir talked of the tourism potential of millions of Chinese visitors and of China as a source of cheap manufactured products for Malaysia; he favours buying a Chinese high-speed rail line to run the length of the country.

For me, the takeaway was that Mahathir doesn’t think a country like Malaysia ‘ought’ to be able to compete with a country like China. His parting shot was to say that it was unfair of me to compare the manufacturing development of Malaysia and Korea in How Asia Works: ‘We are not a single ethnic country. We are a multi-ethnic country. That makes it more difficult. They [Malaysia’s ethnic groups] are not at the same level.’ It was the race-based outlook that I describe in How Asia Works as having been so devisive and detrimental to effective policy in every south-east Asian country.

Would Indonesia be any different? I spoke at an event generously hosted by Trade Minister Gita Wirjawan, who read How Asia Works soon after it was published and announced himself ‘a fan’. However, while he might agree with the analysis of south-east Asia’s problems, at the event he offered no clear statements as to policy changes he believes are required if Indonesia is to improve its development prospects. All I picked up in Jakarta was the same, general sense of discontent after 15 post-Asian crisis years of partial economic recovery based on commodity trade (principally with China) and zero industrial progress.

On this topic, I spent the day before the Trade Ministry event at what used to be called IPTN in Bandung, now known as Indonesian Aerospace. People I asked in Jakarta assumed that the aircraft-building industrial policy adventure sponsored by BJ Habibie — which the IMF insisted be cut off from further state funding as a condition of providing credit to Indonesia in 1998 — is long dead.

But not so. IPTN/IAe lends a little support to my assertion in the book that even failed industrial policy will produce some tangible benefits (just very expensive ones compared with well organised industrial policy). Up in Bandung, IPTN had 15,600 employees, including 3,500 engineers, before the Asian crisis hit. The firm was receiving monthly government remittances to cover development costs for Indonesia’s indigenous N-250, 50-seat turbo-prop aircraft. With almost no cash reserves, when the cash was cut off the firm went into freefall. Management did not stabilise the business until the headcount had been cut by more than 12,000, to just 3,000. They did so by turning what had been an aircraft building business into a low-cost parts supplier, particularly to Airbus.

Today, the two N-250 prototypes sit disconsolate in a parking area of the 80 hectare site (the one at the bottom is three metres longer and can seat 70, so was really the N-270, as in two engines, 70 seats). Suharto himself launched the first prototype in 1995, naming it Gatotkoco after a character in Hindu-Javanese legend. Something of the order of US$1 billion had been pumped into the N-250 programme by 1998. The renamed Indonesian Aerospace kept flying its prototypes — racking up 1,200 test hours — until 2007 in the vain hope of finding cash to finish the project. The outside technical reviews were generally positive, but the will and capacity of the government to back the project were gone.

After the state cash flow was cut, Indonesian Aerospace first obtained work making wing ribs for the Airbus A380. Then it obtained contracts for the A320, and for Boeing and other aircraft. There was no way for the firm itself to invest in development projects because residual government debt made it unbankable. Only in 2011 did the government agree to a debt write-off (technically a debt-equity swap). This was followed in 2012 by a Rupiah1.2 trillion (circa US$100m) ‘goodbye’ capital injection from the state.

Indonesian Aerospace continued to assemble small aircraft after the crisis that it had assembled before 1998 in a joint venture with a Spanish firm — now owned by Airbus Military. Gradually it has managed improve the terms of its cooperation with Airbus, moving, for instance, to profit sharing on the most popular model it builds. Critically, the post-crisis era focused Indonesian Aerospace on selling aircraft as well as making them. It currently exports around one-fifth of the small aircraft it assembles — to Thailand for rain-seeding, to South Korea for coastal surveillance, to Malaysia, Pakistan and Turkey. Exports, however, are still nowhere near as strong as they were in Embraer’s formative stages in Brazil, before that firm went on to be truly globally competitive. Indonesian non-weaponized defence procurement is the current backbone of Indonesian Aerospace’s order backlog, which stands at US$1 billion.

Perhaps most interesting is that the firm, after conducting five years of market studies (what would have been an unthinkably long period of analysis in the pre-crisis era when it was rushing straight from the N250 to the N2130, a 130-seat jet aircraft), has committed to develop a new civilian aircraft of its own. Indonesian Aerospace managers say they have 150 non-binding commitments for a very small, 19-seat passenger aircraft designed for low-cost travel between second-tier cities in the provinces. Indonesia, like the rest of south-east Asia, already has a booming low-cost sector between key cities based on Boeing and Airbus aircraft. This is an attempt to grab a bit of market share below the radar of the big boys. The aircraft will work off short landing strips, be able to carry substantial amounts of freight relative to passengers, and is designed for use with minimal air traffic control; a prototype will fly in 2015.

Indonesia’s industrial policy was badly conceived, with too little competition, no involvement of leading entrepreneurs, and almost zero export orientation. Even today Indonesian Aerospace has failed to build a supplier cluster around Bandung. But it looks like the firm may in the end produce a marketable aircraft worthy of the name of indigenous technological capacity.

The big point of contemporary comparison, of course, is China. Earlier in 2013 there was a mild panic among foreign observers that that country’s accumulation of bad debt — largely a result of the aggressive industrial policy orientation of its financial sector — could lead to imminent financial melt-down. But not so. Unlike Indonesia, which had no capital controls in 1997, China is protected from changes of sentiment about its banks by capital controls that trap money in the country and keep the system liquid. China’s capacity to grow away from debt is declining as its growth rate gradually falls, but the basic fact of capital controls still meant that this year’s panic was a storm in a teacup. There is always a lot of waste involved in industrial policy, but control of the domestic financial system allows a government to socialise the cost.

Riding the high-speed rail system (HSR) from Shanghai to Suzhou to Xuzhou to Beijing, visiting firms, I also reflected how massively greater is China’s technological capacity today than was Indonesia’s when that country hit the skids in 1997-8. The entire Chinese economy makes stuff that the world economy is willing to pay for. Manufacturing activity is not confined to one or two bellwether projects like IPTN or Malaysia’s Proton. If crisis struck China today, the country would be way more competitive, in more value-added activities, once the crisis abated than was Indonesia after 1998. And China doesn’t face a crisis today because it has not been dumb enough to abandon capital controls. I suspect the country only has one more economic cycle to go before its control over capital is insufficient to escape crisis — the irony of its present stage of development is that China must begin to deregulate finance in order to waste less capital in an era of slowing growth. But by the time crisis does strike, China’s technological competitiveness and its roster of globally competitive large firms will be substantially higher again that it is today.

So what I came back to England thinking is that there is just a lack of political will and political self-belief in south-east Asia to do things differently. I am not sure it was ever really any different. Even Mahathir, who talked the best game in the region in terms of promising a shift to a Japanese-Korean model when he was premier, says that Malaysians cannot really follow the model because they are not racially up to it. On that view, you have lost before you start.

Blogroll

Baseline Scenario
About the US economy, mostly. These boys are not too funny (they are economists) but they put in serious hours on this site and it is worth reading. Johnson is a Brit former IMF economist with perspective. Updated daily.

John Kay
About Britain and micro-economic issues. Research-heavy analysis rather than opinion. One of the few people with really clear ideas on bank regulation, but not yet (for me) fully thought through.

Krugman
Posts multiple times a day cos he’s manic. I was at a boring conference with him where he appeared to take frantic notes. Later transpired all he had written on his pad was ‘I need a beer’, about one hundred times. Still got Nobel.

Martin Wolf (FT sub needed)
Particularly good on Europe. During his life, Wolf has fallen in love with — and then become disillusioned by — the Labour Party, the World Bank, and perhaps now globalisation. The constant is his hunger for answers.

The Big Lychee
About Hong Kong. Affiliated with Hemlock, the exquisitely misanthropic, underemployed, billionaire’s gweilo running dog. Original Hemlock files available. Updated every day, because the author has a huge salary and nothing better to do.